There are several ways for the government to reduce its debt. One method to bring down the government debt is through either unexpected higher inflation or hyperinflation. Therefore, the countries with high government debt have a high incentive to reduce their debtby creating higher inflation rates because this method is easier to reduce the debt than other methods such as raising tax. However, it would not work if investors expect higher inflation and then request higher interest rates on government securities and shorter terms such as 1 year or 3 years. So, this tactic would not succeed. Japan is trying to reduce its government debt by using this tactic, and its debt is the highest in the world.The tactic would only work if the government induces the investors to invest in government bonds with longer term and lower rates. Then unexpected inflation occurs.

The following chart illustrates the relationship between inflation rates and Debt to GDP ratios among countries in the world. The inflation rates with high government debts are very low for advanced countries due to low GDP growth, but are high for some emerging countries and developing countries because the some emerging countries attempt to reduce the government debts by prompting the higher inflation rates.

The business groups in emerging countries generally want higher inflation rates because they usually expand their business by heavily borrowing, but the advanced countries are usually against the higher inflation because they have had bad experiences with high inflation rates. High inflation usually hurts middle income families (Creditors)and redistributes the wealth to higher income households or business(Debtors).